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Gazprom halts gas supply through Ukraine

Russian giant Gazprom has shut down the gas supply transit to Europe through Ukraine. Moscow warned it would only resume supplies in the presence of EU observers, and if Ukraine agreed to market rates. Europe condemned the cut.

Russian energy giant Gazprom earlier announced a halt to all gas transit to Europe through Ukraine, around one-fifth of the European Union's gas demand, saying it had been forced to do so because Ukraine was blocking transit.

Medvedev told Ukrainian President Viktor Yushchenko that Ukraine must pay market rates for Russian gas, pay its gas debts and allow a new "control mechanism" involving EU observers to verify gas flows through its territory.

Speaking to Yushchenko in a phone conversation ahead of EU-brokered talks between Russian and Ukrainian energy officials set to take place in Brussels on Thursday, Medvedev also said that Moscow was ready to negotiate "any time."

"The price for the gas needs to be the market rate, corresponding to the European price level ... There must not be any discounts or special rates at all," Medvedev was quoted as saying in a Kremlin press service statement.

"For the resumption of gas supplies, there needs to be a control mechanism in place" with the participation of Russian and Ukrainian energy officials, EU observers and international legal firms, Medvedev continued.

His comments appeared to summarise terms already laid out by various Russian officials, including Prime Minister Vladimir Putin.

Russia stopped gas deliveries to Ukraine on January 1 in a dispute that has seen supplies fully cut to at least 11 European states as temperatures in parts of Europe plunged as low as minus 25 degrees Celsius (minus 13 Fahrenheit).

There has been sharp condemnation from the United States, where national security advisor Stephen Hadley said Russia would lose global influence if it continued to "threaten its neighbours and manipulate their access to energy."

Dmitry Peskov, a spokesman for Putin, said efforts to portray Russia as the guilty party in the dispute were politically-motivated and did "not reflect reality." He accused Ukraine of trying to "blackmail European customers."

"The prime minister believes the current situation represents a challenge to the whole of Europe.... This failure to respect contracts is totally unacceptable," said a statement issued by the premier's office.

Efforts to resolve the crisis have gathered pace, with Russian, Ukrainian and European officials set to meet in Brussels on Thursday to discuss the idea of using international monitors to check gas flows from Russia via Ukraine.

The heads of Gazprom and Ukraine gas company Naftogaz were set to take part.

"Russia will resume its deliveries when the observer groups are in place," Czech Prime Minister Mirek Topolanek, whose country currently holds the EU's rotating presidency, told journalists at an EU meeting in Prague.

Topolanek promised a "stronger intervention" from the EU if supplies were not restored by Thursday.

He also said EU energy ministers would hold an extraordinary meeting on Monday if Russian gas imports through Ukraine are not restored.

Despite harsh rhetoric between Moscow and Kiev, both Putin and Ukrainian Prime Minister Yulia Tymoshenko said in separate comments on Wednesday that they supported the idea of sending EU technical observers to Ukraine.

Meanwhile, Romania declared a state of emergency and 70,000 households in the Bosnian capital Sarajevo were without heating. Bulgaria turned off heating on public transport in Sofia and temperatures in homes fell sharply.

Austria, Bosnia, Bulgaria, Croatia, the Czech Republic, Greece, Hungary, Macedonia, Romania, Slovakia and Slovenia have said that all their supplies of Russian gas had been cut off.

France, Germany, Italy and Serbia have also reported drastic falls in Russian gas supplies. Poland and Turkey said supplies from Ukraine had been completely cut but were getting increased amounts through different pipelines.

Experts have said however that the impact of the crisis would be mitigated by the fact that European countries consciously stocked up reserves after a similar Russia-Ukraine dispute caused shortfalls in 2006.

Russian state television broadcast a meeting between Putin and former German chancellor Gerhard Schroeder, head of a Baltic gas pipeline project to Germany that Russia is pushing as an alternative to supplies through Ukraine.